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New Blueprint for Banks to Manage Increased KYC Costs After South Africa Grey-listing

Months on from South Africa’s well-publicised grey-listing, banks in the country are working to not only comply with added responsibilities around Know Your Customer (KYC) processes, but they need to keep close tabs on rising costs. Alongside our partner, Andile, we have released a white paper that highlights four key shifts banks should make in order to successfully manage the country’s grey-listing while reducing costs and increasing compliance. 

When a country is grey-listed by the global anti-terrorism and money laundering watchdog Financial Action Task Force (FATF), it is placed under increased scrutiny because deficiencies in its systems to counter financial crimes have been identified. This raises the risk profile of the country, which comes with an increased cost of doing business.

A 2021 working paper by the Internal Monetary Fund (IMF) indicates that grey-listings typically result in significant reduction in capital flows. Capital inflows decline on average by 7.6% of GDP when the country is grey-listed, foreign direct investment inflows decline on average by 3% of GDP, portfolio inflows decline on average by 2.9% of GDP, other investment inflows decline on average by 3.6% of GDP.

Research conducted by Fenergo, called KYC in 2022, puts a figure on the cost of KYC. More than half of all corporate and institutional banks surveyed spend between R26,500 and R53,000 ($1,000 and $3000) to complete just one client’s KYC review. One in five spend more than R53,000 ($3,000) for a single client review.

Zahi Khaled, Head of Sales from Fenergo says that banks appreciate that KYC and AML / CTF are strategic and important processes. “That’s a universal starting point. While the KYC and AML/ CTF problem statement is a central theme among banks, it is addressed independently and not in a holistic or cross-departmental fashion - precisely because of the unique circumstances that have led to the way traditional banks are structured,” he says. 

“There are four key shifts that banks can make to radically improve their prospects of successfully navigating the grey-listing which over time, will not only reduce costs and dramatically improve compliance and processing time but, when conducted across the industry, will be highly influential in helping the country address the FATF’s concerns and exit the grey list.”

Andile’s Head of Business Development Albert Janse van Vuuren says that it is evident that banks need to reduce their costs, but that beyond managing this, most banks currently cannot produce this single view of a client spanning various business units separated by paper walls. “This concern isn’t related to imminent - though probable - regulatory obligations, but because banks simply need this holistic, single view of their biggest assets. This is especially important considering spiralling costs and managing the shift towards increased compliance obligations, especially in cross-border businesses.”

Download the whitepaper here